Corporation Tax & Company Tax FAQs

Corporation tax is a tax on the profits of limited companies, as well as some other types of organisations. The tax is based on the profits that a company makes during its financial year, after deducting any allowable expenses and allowances and adding back any disallowable expenses (such as entertaining).

The current rate of corporation tax in the UK is 19% on taxable profits not exceeding £50,000.  Profits over £250,000 are taxed at 25% and profits between £50,000 and £250,000 are taxed at a marginal rate of 26.5%. Companies are required to file a corporation tax return each year and pay any tax owed within nine months and a day of the end of their financial year.  Larger companies may have different payment dates.

Corporation tax rates for a taxable period depend on the size of the taxable profits of the company (being its taxable income less deductible expenses and allowances).

Taxable profits up to £50,000 are taxed at 19%.

Taxable profits between £50,000 and £250,000 are taxed at a marginal rate of 26.5% so that, by the time taxable profits reach £250,000, they are taxed at an effective rate of 25%

Profits of £250,000 and over are taxed at 25%.

Corporation tax is due for limited companies based on their accounting period for corporation tax, also known as the financial year or the company's "chargeable accounting period." The corporation tax payment deadline and Corporation Tax return (Form CT600) filing deadline are different.

1. Corporation Tax Payment Deadline: For companies with taxable profits of up to £1.5 million, corporation tax is generally due 9 months and 1 day after the end of the accounting period. For example, if the accounting period ends on 31 March, the corporation tax payment would be due by 1 January of the following year.

For companies with taxable profits exceeding £1.5 million, corporation tax is usually paid in quarterly instalments. The first instalment is due 6 months and 13 days after the start of the accounting period, with subsequent instalments due every three months. These rules may not apply to newly formed companies or those with irregular accounting periods.

2. Corporation Tax Return (Form CT600) Filing Deadline: The deadline for filing your Corporation Tax return (Form CT600) is 12 months after the end of the accounting period. This is separate from the tax payment deadline.

Please note that these deadlines are general guidelines, and your company's specific circumstances might impact the exact due dates. It is essential to consult with a qualified accountant or tax professional to ensure compliance with tax laws and avoid penalties for late payment or filing.

Both companies and sole traders or partnerships can obtain tax relief for trading losses. Here's a simple breakdown:

1. Companies (Corporation Tax):

If a company makes a trading loss, it has several ways to get tax relief:

1. Carry Backward : The company can offset its loss against the profits from the previous 12 months (provided it was trading in that period). This results in a refund of some or all of the Corporation Tax paid for that earlier period.

2. Carry Forward : If the company doesn't use the loss in the current year, it can carry the loss forward and offset it against future profits from the same trade.

3. Group Relief : If the loss-making company is part of a group of companies, it might be able to surrender its loss to another group company, which then reduces its taxable profit.

2. Sole Traders/Partnerships (Income Tax):

For sole traders or partners in a partnership, trading losses can be relieved in several ways:

1. Against Other Income : A sole trader can offset their trading loss against their other income in the same tax year (or the previous year). This reduces their overall income tax liability.

2. Carry Backward : If a business has been trading for some years and suddenly makes a loss, the loss can be set against profits from the past three tax years, starting with the latest year first.

3. Carry Forward : If there's still a loss remaining or the trader chooses not to claim against other income, they can carry the loss forward. The loss can be set against the first available profits of the same trade in future years.

4. Early Years : If the loss happens in the first four tax years of the business, it can be offset against the sole trader's total income, not just trading income, in the three tax years before the one in which the loss was made.

Remember : There are specific rules and conditions for each method, and not all losses qualify automatically. Also, you can't just choose any method without consideration; there are ordering rules and preferences to follow. It's always a good idea to consult with an accountant to determine the best approach for your specific situation.

In Summary :

When a business doesn't make a profit, and instead makes a loss, there are mechanisms in the tax system to provide relief. This means businesses can offset these losses against other profits or income, either from the past, the present, or future periods, depending on the business structure and specific circumstances.

An illegal dividend in the UK is when a company pays a dividend to its shareholders even though it doesn't have sufficient profits or reserves to cover that payment. Essentially, it's paying out more money than it has legally available. If a company pays an illegal dividend, the directors can be held personally liable to repay it.

Not all UK companies require an audit. A company is usually exempt from an audit if it qualifies as a "small company" for that financial year. To be considered a small company, it typically needs to meet at least two of the following criteria:

1. A turnover of £15 million or less.

2. £7.5 million or less on its balance sheet.

3. 50 employees or fewer.

However, there are exceptions, and some companies may still require an audit even if they meet these criteria, or some might voluntarily opt for one. It's always a good idea to check with an accountant to be certain about your specific situation